Rational Decision Making - Chapter 1 (R) Flashcards
Difference between micro and macroeconomics
Microeconomics studies an individual or business market while macroeconomics analyzes decisions made by countries and governments
Definition: Rational decision making
When consumers act on self-interest
The formula for Net Benefits
Net Benefit = Total Benefits - Total Costs
What does Self-interest lead to
Inefficient allocation
Definition: Marginal Benefits
MB is the additional benefit of producing an extra good or service
Example of Marginal Benefits
Doctors
What does PPF stand for
The Production Possibilities Frontier
What is PPF
It illustrates the maximum possible output combinations of goods that can be produced with a fixed amount of resources
How many assumptions does the PPF have
4
What is the assumptions
- The state of technology does not change
- All resources are fully employed
- All available resources are fixed
- That there are only two goods, or groups of goods produced in the economy
What doe the straight graph mean
Straight line curve means constant opportunity cost
What does the Curved graph Mean
A curved graph means increasing in opportunity cost
What is the most transferable resource
Labour
As we transfer resources there is a…
Increase in opportunity cost
The hardest transferable resource is
Capital
